Lange's 1938 Model: Dynamics and the 'Optimum Propensity to Consume'
The Center for the History of Political Economy Working Paper Series No. 2014-02
35 Pages Posted: 7 Mar 2014
Date Written: January 5, 2014
Abstract
Oskar Lange’s 1938 article “The Rate of Interest and the Optimum Propensity to Consume”, is usually associated with the original IS-LM approach of the late 1930s. However, Lange’s article was not only an attempt to illuminate Keynes’s main innovations but the first part of a wide project that included the development of a theory of economic evolution. This paper aims at showing that Lange’s article can help illuminating critical aspects of this project: in particular, Lange’s idea that a synthesis between Kaldor’s and Kalecki’s theories and that of Schumpeter, might have been possible and that it represented (in intentions) a “modern” and consistent reconstruction of the Marxist theory of the business cycle. Section 1 clarifies Lange’s early reflection on dynamics. Section 2 centers on Lange’s 1938 static model and indicates the effects of a change of saving on investment. Section 3 suggests a dynamic reconstruction from which are addressed important arguments raised by Lange in a series of papers written between 1934 and 1942.
Keywords: Lange; Kalecki; Marxian theory of the business cycle; marginal propensity to save
JEL Classification: B22, B24, E32, E12
Suggested Citation: Suggested Citation